Cost of Doing Business, Variable Expenses, Revenue Streams, Financial Analysis

Break Even Analysis

Examination of the income statement to determine the break even point

Analyzing Current Conditions

Examining the current company and market conditions for sales forecasting

Variable Expense

Expense that changes based on the amount of goods or services sold

Fixed Expense

Expense that is not affected by the number of items a business produces or sells

Materials

Expenses for materials used to make a product or provide a service

Labor

Expenses for the amount of money paid in return for someone's time

Cost of Doing Business

Expenses incurred to keep a business running

Cash Flow Statement

Financial document that records inflows and outflows of cash

Cash Reserves

Funds set aside for emergencies and to cover fixed expenses

Payback

The amount of time it takes for a business to earn enough profit to cover the startup investment

Credit Cards

Using credit cards for financing

Reviewing Past Sales

Using past sales data to project future sales

Personal Savings

Using personal savings as a source of financing

Current Ratio

Ratio of current assets to current liabilities

Debt-to-Equity Ratio

Ratio of total debts to owner's equity

Debt Ratio

Ratio used to monitor a business's debts

Financial Ratios

Relationships between financial data used to evaluate a company's performance

Subscription/Membership

Revenue stream based on ongoing fees from customers

Licensing/Franchise

Revenue stream from allowing others to run new branches of the business

Syndication

Revenue stream from allowing others to use creative work at a cost

Transaction/Usage Fees

Revenue stream from fees charged for using a service

Renting/Leasing

Revenue stream from letting others use owned equipment or space

Advertising/Sponsorship

Revenue stream from web banners, ads, or sponsorships

Freemium

Revenue stream offering a free version with limited features and a paid version with all features

Making Educated Predictions

Estimating future sales based on factors that may impact sales

Depreciation

Accounting method of spreading the cost of equipment over its useful life

Other Variable Expenses

Any variable expense not directly related to making the product or delivering the service

Revenue Streams

Different methods through which a company generates income

Variable Expenses Example

Illustration of variable expenses using a jeweler selling necklaces

Venture Capital

Investment in potentially profitable businesses by specialized companies

Angel Investors

Investors interested in financing startups

Return on Investment (ROI)

Measure of the profitability of an investment

Sales Forecasting Techniques

Methods used to forecast future sales, such as full capacity, observational data, industry standards, etc.

Cash Flow

Money received minus money spent over a specified period of time

Banks

Obtaining financing from banks

Credit Unions

Obtaining financing from credit unions

Customer Financing

Obtaining financing from customers

Relatives/Friends

Obtaining financing from relatives or friends

Debt Financing

Obtaining funds by borrowing money

Equity Financing

Obtaining funds by selling shares of ownership in the business

Sales Forecasting

Prediction of future sales over a specific period of time

Crowdfunding

Raising funds by collecting monetary contributions from a large number of people online

Quick Ratio

Ratio of cash and marketable securities to current liabilities

Partners

Sharing ownership and responsibilities with partners

Microloans

Small loans typically provided by nonprofit organizations

Bootstrapping

Starting a business with no outside investment

Collect Cash as Soon as Possible

Strategy to accelerate cash inflow by collecting payments promptly

Lease Equipment

Strategy to conserve cash by renting equipment instead of purchasing

Pay Bills Close to the Due Date

Strategy to delay cash outflow by paying bills just before they are due

Keep Inventory to a Minimum

Strategy to minimize cash tied up in inventory by keeping stock levels low

Managing Expenses

Taking actions to reduce future costs and make informed decisions

Break Even Point

The point at which a business neither makes a profit nor incurs a loss

Burn Rate

The rate at which a company spends cash to cover overhead costs without generating positive cash flow

Barter Financing

Trading items or services between businesses for financing

Break Even

When expenses are equal to sales, resulting in zero net income